Taku Fundira, tralac Researcher, discusses increased South-South trade

In recent years, it has become apparent that South-South economic relations are increasing, and will continue to do so. Since the beginning of the new millennium we are increasingly noticing the influence on the structure of the world economy of some major emerging markets, namely Brazil, India and China. Their role in the global arena, from an economic and political perspective, has raised concern in the developed world about the manner in which their influence is shaping or shifting the global balance of power.

The term South-South in international trade circles has historically been used by both policymakers and academics to describe the exchange of resources, technology, and knowledge between developing countries, also known as countries of the global South.

Kozul-Wright (2011) notes that what economists refer to as economic convergence has occurred in the first decade of the new millennium where we witnessed a combination of slower per capita growth in advanced countries and faster growth in the South. This convergence was mainly driven by the success story of East Asia. However, in this period, per capita income growth in sub-Saharan Africa was also greater than that in developed countries . In terms of production, the developing world maintained an average annual gross domestic product (GDP) growth rate of 4.8 percent during the last 10 years, and now accounts for around 45 percent of global GDP (Deen, 2012). Some key points to note during this period include (UNCTAD, 2012):

• In 2010, South-South exports reached $3.5 trillion, claiming 23 per cent of world trade.

• As from 2008, developing countries as a whole exported more to the South than to the North.

• Between 2001 and 2010, South-South exports grew on average by 19 per cent per year compared to world export growth of 12 per cent.

• After the 2008 global economic crisis, South-South exports rebounded much faster than overall exports. South-South exports grew by 30 per cent between 2009 and 2010.

• The majority (over 90 per cent) of South–South manufactured exports come from Asia. Latin America claimed 6 per cent and Africa’s share is 2 per cent. This has been a consistent pattern for the last decade.

• South-South trade as a whole is an example of regional specialization: Asia exports manufactured goods and Africa and Latin America export commodities to Asia. Fuels dominate Africa’s exports to the Latin America, while basic food items are the main exports from Latin Americato Africa.

In Africa, we have witnessed during this period greater collaboration and the strengthening of South-South initiatives as reflected in the commitments made by China (through the Forum on China Africa Cooperation (FOCAC)); India (through the India-Africa Forum Summit); and Brazil (through the Africa-South America Summit). Furthermore, the role and influence of South Africa in the region has gained greater recognition from the region itself and at a global level.

At the beginning of 2011, South Africa made history by becoming the latest member of the influential “BRICS”, the group of fast-growing economies consisting of Brazil, Russia, India, China and South Africa. To add to this development, there is impetus on the negotiations between South Africa and India towards the attainment of a preferential trade agreement (PTA), while we also noted in 2011 that China surpassed Japan to become the second largest economy in the world.

Undoubtedly the rise of the Global South will continue. It is envisaged that there will be an increase in trade agreements and more trade; more economic and political alliances with economic goals; more investment flows and an increasing acknowledgement that the Global South has more to offer than it has in the past. According to UNCTAD (2012) “these new economic relations have great potential, both for harm and for good. In the absence of directed policies and intentional actors, imbalances of power and growing gaps in development will persist. With the right policies in place, however, these relationships could forge a new global order with greater economic and political equality.”

What does this mean for Africa?

The important question is “What can African firms do to compete with the emerging giants of Asia and/or the Americas?” Can the solutions be found through infrastructural development, export incentives promoting, technology development and or transfer, or is it simply through simple free market competition?

The success stories of Asian economies span five decades, with China following suit as the new emerging economy and potential market. This also begs the questions, “What can Africa learn from these stories?”

Given the trend towards liberalized trade within a rules-based system, African firms can no longer call on Government to impose protectionist measures. Only in a few instances will this be legally possible and economically appropriate. Indeed, narrow firm and sector interests must be weighed against wider interests that are usually not expressed as vocally.

Long-term careful and innovative strategic planning with clear objectives is therefore required to succeed in this new trading environment. This is also important for African firms competing with imports from countries such as China as well as competing against China in the rest of the world.

China, India and Brazil amongst others have indicated their willingness to enhance technology transfer and investment cooperation with African countries. Such collaboration is imperative in the development of strategic and important sectors for Africa such as Agriculture, Mining and Medical industries.

There nevertheless remain many challenges for African firms to face in exploiting these opportunities. These include extending beyond Africa’s current advantage in primary and resource based goods to include competitively manufactured products.  In the long-run, African firms should thus seek out value-adding opportunities.

In light of this, these challenges and opportunities should be addressed with the recognition that Government cannot protect uncompetitive firms.  Although there are some policy options for development, in the longer term Government is best able to promote growth by creating conditions that allow for firms to compete internationally.

The rules-based trade system does afford developing countries some flexibility in this regard. African firms, and indeed all stakeholders, are thus well advised to engage more meaningfully, and less rhetorically, with Government in achieving optimal outcomes.

Tell us what you think.

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Sources:

Fundira T. 2006. China: A threat or opportunity for South Africa? Export SA 2006, May Issue pages 20-21, South Africa.

Deen T. 2012. UNDP Predicts Rise of the Global South. Inter Press Service, June 13. Available [online] at: http://www.ipsnews.net/2012/07/undp-predicts-rise-of-the-global-south/

Kozul-Wright, R. 2011. The “Rise of the South” and What It Means. South Centre, January 26, Geneva. Available [online] at: http://www.twnside.org.sg/title2/resurgence/2011/248/econ1.htm

The Economist 2013. O for a beaker full of the warm South. The Economist, Jan 19. Available [online] at: http://www.economist.com/news/finance-and-economics/21569747-poor-countries-other-poor-countries-matter-more-rich-ones-o-beaker

UNCTAD 2012. South-South Trade Monitor. Issue 1, June 2012, United Nations Conference on Trade and Development. Geneva. Available [online] at: http://unctad.org/en/PublicationsLibrary/webditctab2012d2_en.pdf